26 Oct Four Ways Not to End Up Like Sears
The bankruptcy filing of 142-year old-Sears should give all business men and women pause. They need to reflect on the state of their businesses to ensure their organizations are not headed for the same unpleasant fate.
Even in failure, there are important lessons to be learned so as to avoid the same undesirable outcome.
Sears found itself under-capitalized, a paucity of ready cash, over-leveraged with massive unsustainable debt, and with limited appeal to a young, fickle, tech-savvy consumer.
Unable to adequately address these three strikes, they filed for Chapter 13 bankruptcy reorganization.
It remains to be seen if they will re-emerge as a leaner more profitable institution.
If you intend to sustain a successful enterprise over the long haul, you must learn four things from Sears:
- Properly manage the accumulation of liquid assets and rising debt
Manage your cash flow. Ensure that you issue payments to your debtors or even your employees at certain times of the month so that you can be cash flow positive. You can never be too concerned about profit and loss.
Sears should have taken a cue from Netflix. When Netflix came onto the scene in 1998, it focused solely on DVD mailers on a subscription basis. Yet, co-founders Reed Hastings and Mark Randolph, decided in 2011 to disrupt the market and its customer basis. Netflix changed its prices, charging customers for its mail rental service and streaming service separately. This meant a price increase for customers who wanted to continue receiving both services. Customers were angry at first but Hastings and Randolph saw something that we didn’t. Netflix used the change to evolve over the past decade to take the leading position in the disruption of the movie rental sector. Customers soon forgot about the mailers and embraced movie streaming. It entered the digital age while it steadily increased its revenues and market share. Now, look at DVD sales, Blockbuster stores. Where are they? Yet, Netflix set the trend by way of innovation…being the first.
- Determine new ways to attract customers to your door
Catalogs, direct sales and phone sales are as dead as Willy Loman in Death of a Salesman. If you haven’t figured out that Instagram, Facebook and other online marketing methods are where you need to be focusing your energies, then you may suffer the same fate as Sears in just under a year.
- Avoid Bankruptcy
Never file bankruptcy early on in your business. Remember what bankruptcy means. It means you can no longer pay your debts and you need a fresh start by liquidating your assets to pay your debts or by creating a repayment plan. All bankruptcy cases are handled in federal courts under rules outlined in the U.S. Bankruptcy Code and the most popular are:
Chapter 7 and 13 – individuals and businesses may file this
Chapter 11 – businesses only may file this
If you are in an open bankruptcy, then you cannot apply for credit cards, credit lines or merchant cash advances.
There is a benefit to merchant cash advance, though. If you get your bankruptcy discharged within 12 months, then you can actually apply for this advance.
If you fail in any of these four pillars of business, you will eventually find yourself in the same position as poor, old and venerable Sears.